Ontario Court of Appeal orders mediation to proceed in contracts case

In October 2021, the appellant invoked its right to seek mediation under GC18 due to an alleged breakdown of its working relationship with the respondent, as shown by letters that the parties exchanged in the preceding 15 months. 

The respondent refused to appoint a mediator. It denied that a dispute existed between the parties that they could refer to mediation under GC18. The respondent noted that the letters it exchanged with the appellant referred to conflicts that arose over 30 days before the appellant’s mediation request. 

The appellant served a notice to arbitrate. In March 2022, it applied for a court order appointing an arbitrator under GC18 and s. 10(1) of Ontario’s Arbitration Act, 1991. In April 2024, an application judge of the Ontario Superior Court of Justice denied the application. 

According to the judge’s interpretation, GC18 required a party to seek mediation within 30 days of a dispute arising between the parties as a condition precedent to requesting arbitration. 

The judge determined that the parties had resolved any disagreements within 30 days, or over 30 days had passed since any unresolved dispute arose before the appellant sought mediation. The appellant challenged the judge’s decision. 

Mediation ordered

The Court of Appeal for Ontario allowed the appeal and granted the appellant’s application, specifically its request that the appeal court order mediation to proceed within 60 days. The appeal court added that the appellant retained the right to seek arbitration under GC18 if it still could not resolve its dispute with the respondent. 

First, the appeal court ruled that the application judge made a legal error in interpreting GC18. The appeal court held that a party to GC18 would not lose its right to participate in dispute resolution if it failed to serve a mediation request within 30 days of a dispute arising. 

According to the appeal court, under the proper interpretation, the dispute resolution clause: 

• did not obligate the parties to request mediation within 30 days of a dispute arising 
• instead required them, at every stage, to try to settle their disagreement before elevating their dispute to a higher level 
• set a minimum of 30 days for the parties to attempt to resolve their differences through informal negotiation before seeking a mediator’s formal appointment 

The appeal court explained that this interpretation made good commercial sense for long-standing and complex relationships and also made sense in the context of the other contractual terms. 

On the other hand, the appeal court saw no sense in interpreting GC18 as requiring the parties to serve mediation notices each time they could not resolve their disagreement within 30 days. 

The appeal court found that the respondent’s suggested interpretation would place the appellant in a difficult spot whenever a dispute arose and would contradict the overall dispute resolution scheme, GC18’s language, other contractual terms, sound commercial principles, and good business sense. 

While the appeal court noted that this issue adequately dealt with the appeal, it also addressed the issue of the scope of the parties’ dispute. The appeal court held that the judge committed an error in principle when she made findings about the scope. 

The appeal court accepted that the judge correctly noted that the arbitration tribunal would be better positioned to determine the scope of the dispute subject to arbitration in a situation where it was arguable whether the arbitration agreement’s terms covered the dispute. 

However, the appeal court found that the judge failed to apply this principle, partly due to her misinterpretation of GC18, and failed to limit her analysis of the evidence to the question of whether the parties had a dispute arguably triggering a right to arbitration under GC18. 

The appeal court noted that the judge made multiple factual findings regarding the parties’ history of interactions in the preceding 15 months.